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Perelman Takes Over Hummer Firm

His investment company and Renco will form a venture to own AM General, maker of the SUV and the Humvee.

August 11, 2004|From Bloomberg News

Billionaire financier Ronald O. Perelman is adding the Hummer sport utility vehicle to his stable of holdings.

Perelman's MacAndrews & Forbes Holdings Inc. is forming a joint venture with Renco Group Inc. to own AM General, which makes the Hummer for General Motors Corp., the companies said Tuesday. Terms weren't disclosed.

For Perelman, 61, the transaction is a bet on an off-road vehicle that sells for more than $50,000 and gets 10 miles or less per gallon of fuel and whose unit sales fell 22% in the first seven months of this year as oil prices rose.

"Clearly, he must see things that others don't, particularly with gas prices doing what they're doing," said Kenneth Harris, a partner with consumer-products consulting firm Cannondale Associates in Evanston, Ill. "It's a counterintuitive bet that oil prices fall, that there's a certain cachet to a Hummer, that there are commercial and industrial markets for them."

MacAndrews & Forbes contributed cash to the venture, to be called MacAndrews AMG Holdings. Renco, controlled by investor Ira Rennert, provided its ownership of AM General, the companies said.

South Bend, Ind.-based AM General also makes the Humvee line of military vehicles on which the Hummers are based. The Humvee, introduced in 1985, is in widespread use by the military.

Perelman's holdings include cosmetics maker Revlon Inc., motion picture camera maker Panavision Inc., office security provider Allied Security and game maker Scientific Games Corp.

He owns about 60% of Revlon. That company, which has lost money for 23 quarters, reduced its debt to $1.2 billion from $1.8 billion in the last year and expects sales to rise 3% in 2004 as it adds new products.

The AM General transaction may represent a return to deal making for Perelman because he believes his largest holding has stabilized under Chief Executive Jack Stahl, Harris said.

"The shackles are off, and he can go back to buying companies he views as undervalued," he said.

AM General's management team, led by James Armour, will continue to run operations, said MacAndrews & Forbes and Renco.

Renco bought AM General for about $133 million in 1992 from defense contractor LTV Corp. AM General was incorporated in 1971 as a wholly owned subsidiary of American Motors Corp., maker of Jeep and Rambler automobiles.

GM, the world's largest automaker, distributes AM General's Hummer H2 model. GM bought the rights to the Hummer brand in 1999.

"It's one of General Motors' most profitable vehicles," said Burnham Securities Inc. analyst David Healy, who estimates the automaker gets about $15,000 in pretax profit on each H2 sold.

MacAndrews & Forbes and Renco are based in New York.

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